Moon Bakery Capital Investment Npv Analysis Case Study Case Study

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Moon Bakery Case Study – (Excel Template attached in different file)


Based on the information provided in the case study, Moon Bakery should look to invest in the $350,000 machine. Here, the Net Present Value of the investment is positive indicated that the machine will add value to the business if the project is undertaken. Likewise, from the payback period analysis, the company should look to receive a payback on the investment in at least 3 to 4 years. This is beneficial as the machine is expect to be functional for at least six years.
When reviewing the data, the risk of undertaking the project is low given the projected increases in revenue along with long duration of the asset being used. In addition, Jane may want to consider financing a portion of the purchase with debt. Here, the company has a very low cost of debt and very little leverage. By financing a portion of the purchase with debt, the company can lower the overall risk of the project and bring their overall cost of capital…

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…of the debt costs.

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This debt can then be services from the free cash flow that will occur from the increase in revenue and sales due to the machinery.
Overall, the company should undertake the project and invest in the machine. It first provides a limited competitive advantage as it increase efficiencies and revenues for the business. These revenues are justified by the positive NPV calculations as noted in the attached template. In addition, the payback period is relative short, thereby indicating a strong investment opportunity. Finally, through the use of debt, the company can profit….....

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